Kim Wright-Violich (left) is clearly an advocate for the donor-advised fund that she runs, Schwab Charitable, but in an interview during the Schwab Impact conference in Boston in late October, she also displayed the easy command of both the United States tax code and the psyche of the affluent—why they give, and how they prefer to give. “Privacy,” she pointed out, “is a big driver for the ultra-affluent, not for the mass affluent,” in answering a question as to whether some donors preferred the anonymity of the donor-advised fund approach to charitable giving rather than the private foundation vehicle. Since the Bill Gates-Warren Buffett philanthropy trip to China had just occurred, we raised a question on the international aspects of donor-advised funds. She quickly answered: “Foreign citizens can donate to a DAF if they pay taxes in the U.S.,” she said, qualifying that statement by saying the DAF must make grants to a U.S.-based charity.
Times are good at Schwab Charitable, which announced Oct. 27 that it expected a record year in both contributions to and grants from the DAF in 2010. Through the third quarter, Schwab Charitable said that contributions were $610 million, up 274% from the nine months through Sept. 30, 2009, and up 90% from the same period in 2008. Of those contributions in 2010, appreciated securities accounted for 74% of the value of contributions, up from 64% the previous year, reflecting the appeal to investors of taking an immediate tax deduction and avoiding capital gains taxes on unrealized gains.
As for donations from Schwab Charitable, Wright-Violich said that grants to charities in the first nine months of 2010 totaled $262 million, up 15% from the same period in 2009, and up 3% over the previous best year for grants from the DAF, 2008.
AdvisorOne: Contributions to Schwab Charitable and grants from the fund are way up this year. I noticed that a large part of your growth in 2010—more than $200 million—came from private foundations. Do you expect this to continue? Why the move away from private foundations?
Wright-Violich: A recent survey [by Gallup for the U.K.'s Charities Aid Foundation (CAF) called the “World Giving Index 2010”] found that spending money on yourself brings less contentment than spending on others. The difference these days is that people are asking themselves how they can leverage their charitable donations with limited resources.
Many private foundations were founded for the wrong reasons, but the depreciation of assets during the crisis forced many private foundations to look hard at their costs, and they then had to go into their principal or cut costs. Many people thus found themselves working longer hours at their foundations, yet they didn’t want to spend time on the administration of the foundation.
Privacy is a big driver for the ultra-affluent, but not for the mass affluent. In particular, foreign-born Americans want to be anonymous [which they can do in a donor advised fund, but not in a private foundation, which must make public their officers and their donations]. They also don’t want to get bugged by other charities [so a DAF is a better protector of their privacy]. There are some benefits to private foundations: you can’t have family members in a DAF, and it is slightly easier to make grants. But our expertise has grown in charitable giving; we’ve developed a niche, especially in handling complex gifts, in handling private equity of over $10 million, in helping investors hire a philanthropic advisor, and in serving the super-affluent. DAFs are clearly a strong alternative to private foundations; we have a worksheet on our site showing the issues to consider when converting from a private foundation to a donor advised fund.
AdvisorOne: Bill Gates and Warren Buffett were just in China trying to teach newly minted Chinese millionaires to become more philanthropic. What are the international issues around charitable giving?
Wright-Violich: Foreign citizens can donate to DAFs if they pay taxes in the U.S., though [the DAF] has to make grants to a U.S.-based [501(c)(3) or 501(a)(9)] charity. Most donor advised funds won’t allow giving overseas.
AdvisorOne: There’s much angst over the possibility of higher taxes on both the federal and state levels. Does that affect charitable giving? If taxes go higher, will that benefit donor advised funds?
Wright-Violich: There is some evidence that tax changes help drive philanthropy, but while we can predict what tax rates might be, we don’t know if it will change philanthropic behavior. What drives charitable giving is when people have an overall sense of personal financial well-being, and when the stock market is behaving. Does the prospect of higher taxes in the future cause less giving now? There’s not enough evidence to know, but donor advised funds are so flexible that we’ll be able to handle what’s coming either way.